Faster growth of internet users and increasing aspirations of people in less densely populated areas are driving the online retail growth in the country

According to data provided by consultancy firm RedSeer, the year-on-year (y-o-y) growth in unique online shoppers in 2017 was only 11 per cent, compared with 34 per cent growth in tier-II and other smaller towns.

Armed with cheap mobile data tariff and better telecom infrastructure, online shoppers from the country’s tier-II and tier-III areas are driving growth for e-retailers. Since the explosion in data consumption in the past 18-20 months, the online retail segments, as in case of various others in the consumer internet sector, has witnessed a chunk of its growth from the relatively smaller areas. According to data provided by consultancy firm RedSeer, the year-on-year (y-o-y) growth in unique online shoppers in 2017 was only 11 per cent, compared with 34 per cent growth in tier-II and other smaller towns.

In 2016, metro cities had the highest contribution to the total number of unique online shoppers in the country — 33 million out of 74 million, with tier-II and other cities having only 27 million. However, the trend reversed in 2017, when there were 37 million unique shoppers online from the relatively smaller regions out of a total 90 million, with the larger metro areas having 36 million. For the growth in 2017 over 2016, the firm said, the fastest increase in number of shoppers was witnessed in Vadodara, Gujarat, and Guwahati, Assam. Going ahead, RedSeer expects a total of 117 million unique online shoppers in 2018, of which 56 million are estimated to be from tier-II and other smaller towns, whereas 40 million are expected to be from metros and 21 million from tier-I areas.

The Internet and Mobile Association of India (IAMAI) observed in a study earlier this month that in terms of number of internet users, rural India witnessed a faster growth of 14.11 per cent in December 2017 over December 2016, when compared with urban India, which saw a growth of 9.66 per cent. The report said that urban areas are estimated to have around 295 million internet users as of December 2017, whereas rural areas are expected to have around 186 million users.

Experts suggest that apart from the telecom offerings, the increasing aspirations of people in the less densely populated areas of the country are also driving this growth in e-commerce. RedSeer’s analyst Vaibhav Arora told The Indian Express that it was categories such as mobile phones and other consumer electronics that were behind this growth in online ordering from tier-II and other smaller towns. “There’s a lot of potential in fashion goods also but there’s a certain element of trust that needs to be dealt with by the e-retailers before that category picks up, which is why fashion as a category, while growing rapidly will lag other categories such as mobiles and other electronics,” Arora said.

According to a report by CARE Ratings last year, 40-45 per cent of online shopping in India is for electronics and allied categories, followed by apparel and lifestyle at 25-30 per cent. Arora added that for branded goods there was a factor of product availability in online marketplaces vis-à-vis physical stores in smaller towns that pulls people to e-commerce portals, and as an effect, driving the growth of e-retail.

A 2017 report by Facebook and Boston Consulting Group corroborated this argument by noting that the number of online fashion shoppers is expected to reach 130-135 million by 2020, more than 50 per cent of which are expected to be from “tier-II or even smaller towns”. “Shoppers from lower tiers are different along many dimensions. Small town shoppers make more planned purchases. Needing new clothes and special occasions (function, travel, weather) are key triggers for the purchase. They are less triggered by the latest compared to metro/tier-I. While shopping online, metro/tier-I shoppers are driven by discounts. As against that, the availability of larger variety online is the most important driver for small town shoppers,” the BCG-Facebook report said. However, it also underscored the fact that a majority portion of apparel shoppers in tier-II and smaller towns are either pure offline purchasers or ones who research online and purchase offline.

Notably, it is not only for online retail companies, such as Flipkart, Amazon and Snapdeal, that lesser populated cities of the country present a growth potential. Even for traditional brick-and-mortar retailers, the e-commerce format brings an opportunity to expand in these geographies without facing the challenge of high capital investment. “Online retail business is the next generation format which has high potential for growth in the near future. After conquering physical stores, retailers are now foraying into the domain of e-retailing to leverage the digital retail channels (e-commerce), which would enable them to spend less money on real estate while reaching out to more customers in tier-2 and tier-3 cities,” CARE Ratings said in the report.